Building Your Wealth Instead of Driving It Into the Ground

Read what a 47 year-old millionaire mechanic has to say about building wealth
 
Imagine operating a good old fashioned barber shop.  You charge about $10 for haircuts; you work with a friendly group of regulars, and generally, you socialize while making a good honest living.  Oh, and without inheriting a penny, you’re rich…really rich.  Would that be possible, or not?
 
Years ago, I read a finance book by a guy named David Chilton, called The Wealthy Barber.  I enjoyed it and I learned a lot, but it didn’t inspire me much.  For starters, the book was fiction.  The wealthy barber was some guy Chilton made up.  The barber was a character who gave sage investment advice to a group of financial goofballs who came in for regular haircuts.  But the barber wasn’t real.  Can somebody really become wealthy on a barber’s income or does it just make a nice story?
 
Today, I believe they can, largely because of what I’ve learned from Russ Perry.  A diesel mechanic, Russ was divorced at a young age and he was given full custody of his two young children to raise on his own. 
 
When I met him, his kids were in their early twenties, and Russ was a millionaire.  When we talked about money, his premise was pretty simple:  If he could do it on a mechanic’s salary while raising two kids, then so could anyone.
 
 We worked the night shift together, which wasn’t particularly busy—especially on weekends.  So we had plenty of time to talk.  I worked as a serviceman at the bus depot where Russ was a full-time mechanic.
 
My job was pretty simple.  I washed buses, fuelled them and recorded their mileage at the end of the day.  If somebody was travelling on a city bus, and they happened to throw up, then I’d get  the call to glory.  I’d take a bus onto the road, meet the “puke bus” on one of its regular runs, and the passengers and I would exchange buses.  Offering a fresh smelling bus to a group of evening travelers made me a pretty popular guy on Saturday nights.  Then I’d take the “puke bus” back to the bus yard where I’d be slapped with the reality of what someone else had for dinner.
 
During my free moments at work I alternated between cringing and laughing out loud when Russ sermonized about money and people.  Not everything Russ had to say was politically correct.  But his crassness always had an element of truth to it.
 
For starters, he often said how surprised he was that so many smart people could be so dumb with money.   He was charmingly self deprecating when referring to his own lack of education, but he didn’t pull punches when referring to what he figured most people’s financial shortcomings were.  “I can’t figure out how so many smart people could be so dumb,” he’d often say.
 
Russ claimed that he could tell how smart someone was by looking at what they drove.  “You see that guy over there,” he’d say, pointing to someone who worked in management.  “Nice university degree, six figure salary, but look at what the guy drives.” 
 
Russ couldn’t figure out why anyone would pay a lot of money for something—like a luxury car– that depreciated in value over time.  And if they had to borrow to buy it, he was really left scratching his head.  As the owner of 27 houses, Russ was used to buying assets.  Anything that lost value over time, he deemed as a liability.
 
As Russ saw things, someone’s wealth was rarely determined by how much money a person made.  In his eyes, a huge salary was something like having a water tap over a bucket.  If they had a large salary, the tap flowed with gushing water.  But as Russ often pointed out, wealth is relative to how much water can be collected from the bucket, not how much water gushes into it or over the sides.  “There are plenty of people with huge salaries who can’t collect the water,” Russ used to say, “because they’ve drilled huge holes in the bottom of their buckets.  And when water rushes out the bottom, it doesn’t matter how freely it initially rushes in.”
 
Russ measured wealth by a different standard.  To him, you were only wealthy if you could maintain a lifestyle that you enjoy, without having a salary.  Your investments, he’d say, need to generate enough income to live off.  And only if you had that, could you consider yourself wealthy. 
 
As for wasted money, Russ figured that most people squandered money without really knowing where it went; while others bought toys that made them look wealthy, but put them perilously close to insolvency.  “You’d be surprised,” Russ said, “How many ‘Big Hat no Cattle’ type of people there are in this world.  They borrow money to buy depreciating assets—like flashy cars—when really, the only things you should ever borrow money for should be assets that appreciate over time.  There are so many people who look wealthy,” he explained, “But many people with big salaries and loads of expensive toys are just one or two paychecks away from the poorhouse.”  “If their income dried up,” he’d chuckle, “they’d find themselves broke, without the ability to pay their loans.”
 
Russ was blowing my mind with this stuff.  I never thought about it in this sense before, and I was reluctant to believe him.  But I listened intently, and he offered some sage advice.
 
“Andrew,” he said, “If you can go through life without losing money on cars, you’re going to have a huge advantage.”  He pointed to a guy across the parking lot who worked in management.  “You see that guy getting into that BMW,” he said.
 
I had admired the car when I arrived at work that night.  It was a beauty.  “He bought that car last year, brand new,” Russ said.  “But he has already lost $17,000 on it from depreciation and loan interest costs.”  “And in about five years,” Russ smiled, “he’s probably going to buy another one.”  I wondered what the car would be worth in five years, if it had already depreciated so much in a single year.
 
 “If you’re truly wealthy,” Russ explained, “Then there’s nothing wrong with blowing money you can afford to lose on the odd luxury item.”  But if you’re trying to become wealthy,” Russ said, in a serious tone, “and you make those kinds of purchases, you’ll set habits of waste and consumption that are going to be tough to overcome.”
 
Russ talked about turning conventional wisdom on its head.  He told me that people don’t actually have to lose money on cars if they’re careful.  Most people expect to lose money on cars, but expecting it becomes a self-fulfilling prophesy.  Russ claimed that he has never lost money on cars.  But I might have expected that from someone both financially and mechanically inclined.  My biggest question at the time was whether it could work for me—a guy about as mechanically inclined as a blind Neanderthal with two left hands.
 
After learning some basic purchasing strategies from Russ,  I’m proud to say that when averaging out my profits and losses, I haven’t lost money on cars during the past 15 years.  There are a couple of cars that I drove, and then sold for slightly less than my purchase price, but there were other cars I drove for a couple of years and then sold at a profit.
 
“When you buy a car,” Russ said, “think about the resale value.”  Russ said that the bulk of the depreciation on a new car occurs in the first year.  So he recommended that I never buy new cars, and that I buy a car when most of the depreciation was covered by someone else.
 
I took his recommendations to heart, and so far, over the past fifteen years, I’ve yet to lose money on cars.  Russ told me that the best resale comes from Japanese cars.  He recommended that I look for low mileage models with original paint, great tires, and a great interior—fastidiously maintained cars only.
 
He said that if I pay the right price for a car, and the bulk of the depreciation was covered by someone else, I’d be able to sell the car a year or two later for the same price I paid—if not a bit more.  Putting his theory to the test, I went out in search of cars that wouldn’t put holes in the bottom of my financial bucket.
 
It didn’t take me long to get a feel for the market.  I read a few consumer reports on reliable automobiles.  One invaluable source was a book called The Lemon Aid Guide to Used Cars.  Certain cars and models are bona fide lemons—while others can be great little workhorses.   I’d spend a few minutes each morning, looking through the classifieds in the local paper, and when I’d see something interesting, at what looked like a good price, I’d check it out.
 
Most of the time, with low mileage, reliable Japanese models, I was able to drive them for at least a year without putting any extra money into them.  And at the end of the year, I either broke even on the sale, or made a small profit.  Because there are so many people who aren’t good with their money, you can often find desperate people who have overextended themselves financially.  Those are the people to buy from.  Generally, they want money quickly, to either upgrade their car, or pay off oppressively looming debts.   I’ve bought used cars from both types of people, put as much as 60,000 miles on the autos, and then sold them a year or two years later for the same price I paid. 
 
If you can do the same, or limit your losses, you can turn the savings into a small fortune by investing the money in ways that I’ll explain later in this book.
 
You might, though, not be interested in scouring for decent car values every couple of years or so, like I was.  As Russ told me, you might just buy one car and hold it for as long as you can.
 
One surprisingly simple strategy for buying a used car can save you loads of time, and money.
 
Imagine wandering onto a car lot.  You’re not generally given free reign just to browse on your own or with the friend you’ve arrived with.  A sharply dressed young man or woman will soon be courting you through a variety of makes and models. They could have the very best of intentions, but if you’re anything like me, your pulse will race a bit faster as you’re shadowed, and your personal processing time might be a tad on the slower side.  After all, you’re on their turf.
 
Russ inspired me to see a way around this.  It’s a strategy that promises to save you plenty of time the next time you’re looking for a car.  After all, wouldn’t you rather spend time enjoying your family or your favorite leisure activities than dragging your way through dealerships, and fending off the occasionally aggressive salesperson?
 
Here’s a strategy I’ve used effectively.  First, I identify exactly what I’m looking for.  In 2002, I wanted a Japanese car with a stick shift, and original paint.  I didn’t want something with a new paint job because I’m not skilled enough to determine whether something had been covered up:  previous rust, damage from an accident etc.  I also wanted to ensure that the car had fewer than 80,000 miles on it, and I wanted to pay less than $3000.  It really didn’t matter how old the car was—as long as it had been taken care of and hadn’t been around the block too many times.
 
Pulling out the phone book directory, I wrote out the numbers for every car lot within a twenty mile radius.  And I started to make my calls.  Sticking to my guns, I told them exactly what I was looking for, and wouldn’t entertain considering anything that didn’t fit all of my criteria. 
 
I did have to stick my ground.  But it was a lot easier doing it over the telephone than it would have been in person. Most of the dealers told me that they had something I’d be interested in, but they couldn’t go as low as $3000.  A couple of them even referred to my price ceiling as “delusional.”  But I wasn’t bothered.  It’s a lot easier to take that kind of thing over the phone.  And I remained polite—knowing that I might end up calling on them again.
 
I called all of the dealers back when it got closer to the end of the month.  I was hoping that the salespeople would be hungrier by then to meet their monthly quotas.  As fortune would have it, an elderly couple had traded in an older Toyota Tercel with 30,000 miles on it.  It was exchanged the previous evening at one of the dealer’s lots.  The car hadn’t been cleaned or inspected.  But they were willing to sell it quickly for $3000.
 
Russ’ car buying strategies don’t have to be used solely for $3000 cars.  The process makes sense for any make or model and it saves time.   What’s more, the money you save can be effectively invested and you can get closer to your dream of early retirement.